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HMRC internal manual

International Manual

HM Revenue & Customs
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Controlled Foreign Companies: exemptions - Exempt Activities Test ('EAT'): Main business

There is no statutory definition of the term ‘main business’. It is a question of fact which of a controlled foreign company’s activities constitutes its main business. In most cases the position will be clear but in cases of doubt the factors to be considered include the levels of turnover, the amounts of capital investment and the levels of profitability of the company’s various activities. Companies can apply for clearance to remove any doubt (see INTM256720 to INTM256750). In some cases it may be necessary to look at more than one year where the matter is marginal.

Where a company carries on a single trade, that will normally be its main business. Where it carries on more than one trade, the main business is likely to be the trade which generates the highest turnover and profits. There will, however, be companies with trading income whose main business may nevertheless be investment of funds. Such companies are likely to be characterised by investment income in excess of their trading profits or investments with a value in excess of the assets employed in the trade. The time devoted by employees to different activities is a poor indication of the main business since investment income is by its nature passive and less likely to absorb staff time than an active trade.


A company carries on a wholesaling business with 4 staff and a turnover of £12 Million. It makes a 4% gross profit which, after expenses, gives net profits of £400,000. It has also invested £7 Million in long term bonds with an 8% yield. No one individual spends all his time on the investment side of the business. The main business is the investment of securities. The net profit on both businesses is considered the better measure here in deciding which is the main business.